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Meeting in Jeddah to calm oil woes

Latest update : 2008-06-22

OPEC president Chakib Khelil has opposed an oil output hike as Saudi Arabia reunites the world’s top oil producing and consuming countries in Jeddah in an effort to calm oil market fears and stabilise the rising price of fuel.(Story: S. Sitbon)

Saudi Arabia is hosting a meeting to discuss stabilising the oil market and its incessantly spiking price index. The meeting will take place on June 22 in Jeddah and all the world’s oil producing, and consuming, countries are invited.

The meeting will be devoted to examining the causes for the breakneck rise in the price of oil. Thirty eight countries, including the United States, four international organisations, and 30 oil companies have replied to the invitation.

Saudi Arabia: the kingpin of the feared OPEC

If this is a deserving title for Saudi Arabia, why is the country organising such a meeting? The Saudis are the world’s first producer of black gold, pumping out 9 million barrels a day. Riyad therefore enjoys a special place among OPEC nations. So much so, says Saudi economist Abdullah Alalami, that “for some, Saudi Arabia and OPEC are one and the same.”

If Saudi Arabia is the first oil exporter, the United States is among the world’s top consumers, and the US’s bill has grown heavier with the rising price of fuel. To end the crisis the US Congress recently passed a law that allows the government to incriminate OPEC members for manipulation of the markets, as if they would do with private companies. “It’s a law against OPEC, but Saudi Arabia is its principle target,” says Alalami.

Leading up to the meeting, Saudi Arabia wants to reassure consumers. Their message, in brief, is: “We are not indifferent to your problem,” explains Francis Perrin, editorial director of the Paris-based trade publication Arab Petrol and Gas. “It’s a good thing to keep the dialogue open now more than ever, as everyone is trying to find a culprit for the rising prices of petrol,” he adds.

Professional sceptics

Experts are not expecting concrete results from the meeting. Economist Abdullah Alalami is an example of such pessimism: “We mustn’t expect anything from this meeting. At the very best, Saudi Arabia will announce raising production to 300,000 barrels daily.” But such a hike is a drop in the bucket. International demand for petrol is 86 million barrels daily; Saudi production is around 9 million.

Perrin believes that the meeting will not bring about specific results for one simple reason: “Very few nations can immediately increase production.” But he agrees that the meeting might affect prices on the condition that “the participants propose new measures.”

Will prices drop?

“King Abdallah would never risk (organising such a meeting) if the wheels weren’t turning in his head,” says Pierre Terzian, director of the weekly publication Petrostrategy. The Jeddah meeting could lead to lower oil prices. “The Saudis will certainly take the initiative even before the meeting, because in the event that the meeting fails, the prices will go up even more.” Meanwhile, Saudi Arabia has confirmed a 200,000-barrel daily increase of production as of July.

“Prices dropped two days after the meeting was announced,” said Perrin. But Alami remains skeptical: if it appears that the markets are influenced by the meeting, he says “it would only be a temporary result.”

Date created : 2008-06-22